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1 Alex Durante, The Federal Payroll Tax: A Primer 1 (2026)

handle is hein.taxfoundation/fdlpyrl0001 and id is 1 raw text is: TAX FOUNDATION The Federal Payroll Tax: A Primer Feb. 2026 Alex Durante Senior Economist Key Findings * Payroll taxes are a significant source of revenue for the US federal government, representing one-third of all revenue raised by the tax system. * Accounting for federal payroll taxes that fund Social Security and Medicare, and including the employ- er's portion, most earners face a combined federal payroll rate of 15.3 percent on their wage income, a rate that has remained unchanged since 1990. * The economic literature shows that, in the long run, payroll taxes are largely borne by workers and are one of the least harmful taxes the government imposes because they are levied on a broad tax base and avoid penalizing saving and investment. * Though policymakers often propose payroll tax holidays to stimulate the economy in the short run, they are usually ineffective (as evidenced by the 2010 payroll tax holiday), although payroll tax cuts on the employer side could boost employment. * Concerns surrounding the depletion of the Social Security and Medicare Hospital Insurance trust funds have led to renewed interest in payroll tax reform, with some policymakers and analysts sug- gesting raising or even eliminating the payroll tax cap to subject more income to the payroll tax. * Such proposals involve trade-offs: notably, that elimination of the payroll tax cap would increase top tax rates substantially on high-income earners and potentially reduce economic growth. The Tax Foundation is the worlds leading nonpartisan tax policy 501 (c)(3) nonprofit. For over 80 years, our mission has remained the same: to improve lives through tax policies that lead to greater economic growth and opportunity. TAX FOUNDATION 1325 G STREET, NW, SUITE 950, WASHINGTON, DC 20005 202-464-6200 1 taxfoundation.org